Sen. Elizabeth Warren (D-MA) said Sunday that she has grown “very worried” that the Federal Reserve’s recent interest rate hikes and possible future increases will “tip this economy into recession.”
Warren made the comments during an appearance on CNN’s State of the Union after being asked about Fed Chairman Jerome Powell’s warning this week that the central bank would make significant moves to combat inflation — including raising interest rates. Powell warned on Friday that tough economic times may be ahead while reiterating the Fed’s primary commitment: to bring down inflation even if it sparks a recession. Warren disputed his rationale for tanking the economy.
CHAIRMAN POWELL WARNS FED WILL BRING DOWN INFLATION, EVEN IF IT MEANS ‘PAIN’
“I am very worried about this because the causes of inflation, things like the fact that COVID is still shutting down parts of the economy around the world, that we still have supply chain kinks, that we still have a war going on in Ukraine that drives up the cost of energy, and that we still have these giant corporations that are engaging in price gouging — there is nothing in raising the interest rates, nothing in Jerome Powell’s tool bag, that deals directly with those,” Warren said.
“And he has admitted as much in congressional hearings when I’ve asked him about it,” she continued. “Do you know what’s worse than high prices and a strong economy? It’s high prices and millions of people out of work. I’m very worried that the Fed is going to tip this economy into recession.”
In Powell’s Friday speech at the central bank’s annual symposium, he said the Fed would continue to raise interest rates “forcefully” in order to return price stability to the economy.
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” he added.
The United States has had two quarters of negative GDP growth — a pattern that is typically associated with a recession. The negative GDP growth is a sign that the economy has slowed, something to which the Fed’s aggressive rate-hiking cycle has contributed.
After an unprecedented two years of interest rates at near-zero levels, the Fed finally conducted its first rate hike in March, raising rates by the typical quarter of a percentage point. That hike was followed up by a more desperate increase of half a percentage point, or 50 basis points, in May, although inflation persisted.
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The Fed announced in June that it would raise its interest rate target by a whopping three-quarters of a percentage point, going on to conduct another 75-basis-point hike in July.
Inflation is now running at 8.5% in the 12 months ending in July, according to the consumer price index. That is down from a June peak of above 9%.
